Productivity an unspoken hope

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Budget 2013 helps create certainty, and that is essential to the confidence that businesses need to invest in their productivity potential.

The EY Productivity Pulse survey of worker sentiment reveals huge untapped potential in organisations. Right across the workforce, people tell us they could do better, they want to do better, and they know how.

But we’re facing huge challenges.

We have an aging workforce and an associated blow-out in health costs in future. That’s compounded by the drain of skilled workers heading overseas. New Zealand is already struggling to fill skill gaps in the economy and the Christchurch rebuild will expose more of this in the building industry.

We need a more intelligent productivity conversation – and the Government has a big role:

It can better restrain costs it can control and avoid a drag on businesses

It has a responsibility to manage the economic growth agenda and the associated risks so businesses have a growth path

It is a very big employer and needs to take the lead on productivity

It has made some encouraging noises on all points in the Budget, without getting into detail.

Let’s be clear on a few points.

Productivity is not just cost-cutting

In our latest survey, the greatest cost-cutting or redundancies were observed in the public sector – 53% of workers compared with 39% in the private sector confirmed cost-cutting.

Simply making cuts and laying people off is a blunt instrument for long-term productivity growth - and our survey is telling us consistently that people and organisational components do matter.

Productivity is about innovation and involving the workforce to solve problems. It’s about training people and giving them skills. And most of all, it’s about improving quality of management.

The Global Financial Crisis was the kind of economic shock where change happens fast and we saw a lot of cost-cutting to match supply with demand, but this is not real productivity. Agencies which constantly move worker numbers up and down are setting themselves up for a long-term decline. A sustainable human capital base is not built this way.

Wage and price inflation matters.

Aside from Christchurch, there is leaky home rehabilitation to contend with as well as changes in the building code around seismic requirements. We are already seeing price inflation in the building sector – businesses tell us it is not unusual to see 30 or 40 per cent increases in salaries! Small improvements in productivity are simply wiped out by wage inflation.

Too much red tape.

We have all seen or experienced wastefulness – be it duplication or inefficient processes - when interacting with a Government agency. For the Government, enhancing productivity in the public sector could be as simple as providing a better level of service. Because when agencies are not as efficient or productive as they should be, they hold back productive individuals in the economy. It’s a double whammy.

People are important.

The Lost Souls category in our survey, a worrying group who tend to be younger and less skilled have a productivity rating below five on our 10-point scale, though nearly 92 per say they could be more productive if only someone took an interest in them or gave them more skills.

The vast majority of workers also believed they could improve their productivity. People don’t want drastic changes but want their skills utilised a little better, better communication around expectations and measures around productivity. These are not difficult things for employers to give them.

It takes all of us working together

Organisations need to get clarity around what constitutes genuinely competitive work, declare a war on waste and motivate their people to make a discretionary effort.

These efforts will require changes by boards, managers and C-suite. At the same time, government needs to lead in promoting national productivity. It could start by measuring and reporting annually on the performance of agencies at local and national level. It also needs to use policy levers to remove productivity hurdles in the rest of the economy.

Employers that push towards their productivity potential stand to gain significant advantage over those whose inertia keeps them stuck at their current level, or even sliding backwards. It’s a message that Government and business together could push harder.

Braden Dickson leads EY's Supply Chain and Operations team

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